Covered Calls in an IRA

This is not investment advice and is intended for entertainment purposes only

Let’s jump right in and let’s keep it simple:

If you are a financially stable, income-earning adult, you should have the following:

1. A credit card

2. An IRA

What if you could not pay taxes on your portfolio gains?!!

It sounds too good to be true, but you can with an IRA or Individual Retirement account.

Before we dig more into this, I am not a tax professional or certified accountant so this is not tax advice.

We’re just two friends talking tax-advantaged accounts.

What is an IRA?

An IRA is a tax-advantaged account you can contribute a set amount of money into per year as determined by our good friends, the IRS (the tax man (or woman!)). You can then invest the money and do not have to pay taxes on the gains in your account.

You heard that right. If you make $10 on an investment in either capital gains, dividends or options income, it will not be taxed!!!

Nice!

There are two types of IRAs and depending on how much you make you should go with a traditional or Roth IRA.

I really don’t want to get too into this but just know that if you individually are a higher earner (> $153k) you probably need to think more about the Traditional IRA.

If you are making less than that per year, a Roth IRA is a total tax haven - Get in there.

For 2023, individuals can contribute up to $6,500 in their IRAs.

Why not more?

Because the government wants you to pay taxes and it’s a huge dub to get to experience the power of tax free compounding.

Here is a link to Investopedia so you can do a deeper dive yourself.

(I’m not getting into the weeds with this because I’m seriously so unqualified and only use a Roth IRA and the IRS is #complicated.)

Covered Calls in my Roth IRA is my Love Language

Nothing gets me going like collecting premiums and not paying taxes on them.

I mean come on?! it’s beautiful.

That’s why I recently started writing covered calls on a semiconductor stock I hold in my Roth IRA: $TSM.

Thematic Position: TSM

Ticker: $TSM

Position Size: 110 shares

% of Portfolio: aprxx. 5%

If you’re new here, two weeks ago we started a thematic investing series where I talk about my portfolio allocation into the semiconductor space.

First off, hello.

Secondly, here is the first piece that introduces the series.

Thirdly, the series got very real when I got featured on TV Tokyo talking about a semiconductor stock that IPOed I owned, $ARM.

But let’s dive into Taiwan Semiconductor Manufacturing.

They make chips in a really cutting-edge way, but hasn’t really fared well compared to other big players in the space like the superstar stock NVDA.

Good thing I chose to invest in TSM and not NVDA when I was deciding what semiconductor stock to hold in 2020!

~hindsight is 20/20~

I originally made the decision when I was very bullish on emerging markets and foreign stocks, but now I’m slowly closing out my EM positions at break even if possible. Too much political risk with the China-Taiwan conflict.

Flash forward to today, I’m selling covered calls on the even lot I own!

Premiums on Premiums on Premiums

I explained what a covered call is here in my melodramatic piece on getting assigned on an $AAPL contract I sold. 🪦

But nevertheless, she persisted!

I’ve sold multiple covered call contracts on TSM and collected over $100 in premiums this quarter.

The best part is: all tax-free PREMIUMS.

A guy I used to work with at Fidelity used to say this when describing covered calls:

“If you saw a $20 bill on the ground, would you pick it up or just keep on walking?”

I’m picking it up.

Selling a covered call with a strike price well out of the money in this market that’s been a brutal September is a little bit of green, in my bloodbath of a portfolio.

Thematic ScoreBoard (me vs. the ETFs):

My total return is down 22% or $2.8k for the position since acquiring it. So this pick was a big fat L.

BUT the ETFs $SMH and $SOXX also hold $TSM so we’re all the suckers here!

Courtney: 1

• Winning stock: ONTO

Thematic ETFs: 0

• Tie loser stock: TSM